Richard Wee Chambers (“RWC”) recently organised a Community Tea Time Talk on “An Introduction to ESG: Are SMEs Bound?” on the 28th June 2023. Our own Mr Darren Lai, partner at RWC was the moderator and the guest speaker was Ms. Kamini Viswanathan, an expert on ESG related matters with a legal background. She is well versed in matters pertaining to International Relations, Workers Rights and Human Rights. The talk was held at Nine Court. Moreover, the talk was live streamed on Facebook for the convenience of the extended RWC community and to create awareness for the general public.
General Overview on ESG
Prompted by Mr Lai, the moderator, Ms Kamini began by explaining generally what Environmental, Social and Governance (“ESG”) means and what it does. ESG is not a new or foreign concept in the commercial world. Rather, it has been around for decades and rooted in a workers’ union investing funds in their company to have a say and stake in the company’s decision. It is also safe to say that businesses have always had certain responsibilities in which they invest their time and money in.
As such, the panel delved deeper into the Environmental, Social and Governance aspects one at a time.
Environmental
The discussion on the Environmental aspect looked into two main points; resource management and carbon footprint. In essence, Ms Kamini stressed on the impact a business can potentially have on the environment be it positive or negative. Resource management, according to the speaker, deals with the conservation of biodiversity, water management and waste management. A carbon footprint, on the other hand, is not just how much carbon the business is emitting. This would be minimising the real impact. Rather, a carbon footprint can extend as far as a few tiers of the supply chain.
Social
The Social aspect of ESG is essentially the people involved in a business. This includes workforce, consumers, impacted stakeholders and even surrounding communities. For instance, if a business clears land for its factory, is the community impacted? Or are they even informed of this measure? Is their livelihood affected by this action? These are some angles a company should consider in reaching social sustainability.
Ms Kamini also stressed that oftentimes, a business tends to overlook its stakeholders. It does not view every measure from a bird’s eye viewpoint, which can lead to discrepancies in its social duties despite how small the magnitude. One good solution for this as proposed by Ms Kamini is for businesses to figure out where the highest occurrence of risk is in their value chain. This way timely preventions or remedial actions can be taken.
Governance
In general terms, Governance is a vital element for a business to succeed. Good corporate governance will ensure that the company operates in an ethical manner. Thus, creating trust for more investors to invest in a company. One way to ensure good corporate governance pointed out by Ms Kamini is ethical decision making processes. On that note, she further emphasised that it is vital to have a balanced management between the board and executive. Even though the law does not require a gender diverse board, ESG complements and fills in the gap for these areas and creates a better company morale. Ms Kamini highlighted that from a human resource perspective, there are cases of indigenous communities taking companies to courts to make sure that no one violates proper governance. This marks a change in future decisions of companies that regard proper governance and ethics.
ESG at the SME level
The discussion then went into the aspect of ESG practice in Small and Medium Enterprises (“SME”). Ms Kamini spearheaded the conversation by addressing the concern most people have when it comes to ESG, that is; “Is ESG compulsory?”. In short, it is not.
But that does not mean companies can get away with unsafe business practices scot free. The repercussions of not adopting ESG is evident. Ms Kamini pointed out that when companies do not meet ESG standards, their consumer base, suppliers, stakeholders or even community would hold them accountable through other means. For instance, the modern consumer is aware of environmental concerns. They may be less likely to purchase from a company which practises unsustainable logging, which affects the company’s image and profit.
According to Ms Kamini, it is oftentimes not compulsory for SMEs to follow ESG practices, especially if they are a start up. But the benefits of doing so are undeniable. She pointed out that if SMEs, from the time of the company’s inception, are already conscious of its impact, then the practice of ESG becomes synonymous with the business in the long run. Thus, SMEs should look at ESG as an investment. If a company starts with fair compensation for employees or a non discrimination policy, in the long run, it is ultimately reducing its turnover rate.
Lastly, the importance of “pulse checks” in a business was underlined by Ms Kamini. The UN Global Compact, according to Ms Kamini, has provided resources to SMEs in Malaysia in the form of a matrix to show businesses where they stand at the given moment. This matrix allows them to evaluate their decisions and make them more sustainable where they can afford to do so. Other instances are ESG reporting such as annual reports, Task Force on Climate-Related Financial Disclosures (TCFD) reports, and Global Reporting Initiative (GRI) reports.
Conclusion
In short, ESG should not be a secondary consideration of businesses, even SMEs because of its evident benefits to stakeholders, consumers, the environment and communities. Thus, ESG can no longer be considered to be an optional practice. With the changing tides, companies should focus more on the sustainability of their decisions and the impact of their business towards the surroundings.
